Set Up Entities for Caps and Floors

Owned by Nancy Cohn (Deactivated)
Last updated: Nov 02, 2023
3 min read

Eagle Accounting has one field defined at the entity level that is specific to caps and floors. You must specify the Net Cap Floor field value prior to any trading of cap/floor contracts. If you do not specify this value prior to trading, trades do not process and tools such as the Book Trade tool do not display the correct trading options.

Option

Tag

Description

Option

Tag

Description

Net Cap Floor

5830

Determines how the system processes caps/floors. Options include:

  • Yes. The system nets a buy and sell of a cap/floor on the same entity into a single position.

  • No. The system treats a buy and sell of a cap/floor on the same entity as two separate positions. If you set the Net Cap Floor field to No, ensure you set the Tech Short Eligible Indicator (tag 57) at the entity level to indicate whether the position can go technically short.

Tech Short Eligible Indicator

57

Indicates whether the entity can go technically short (book sell transactions prior to buys that will eventually be posted). Options include:

  • Yes. Default. The system allows you to oversell, sell without a buy, and process a buy to cover without the short. Setting this field to Yes allows you to use the rollback and replay feature in Eagle's Accounting solution to adjust earnings. The system creates a negative long position (for an oversell or sell without a buy) or a negative short position (for a buy to cover without the short) and when the buy is received, the system replays that sell transaction. If you enter Yes, the system creates a settlement as soon as the trade is processed. There is no trade date to settle date gain/loss. This applies even if the settlement date is in the future.

  • No. Recommended. The system does not allow you to oversell, sell without a buy, or process a buy to cover without the short. The system rejects the trade and sends it to the Exceptions workspace to be reprocessed manually.

For general information about entity setup and entity-level options, see Create/Edit Entity Panel Options and Create Master Fund Panel Options. Detailed information about the Net Cap Floor options follows.

About Treating the Cap/Floor as Two Separate Positions

If you set the entity's Net Cap Floor field to No, an entity can have both a long and a short position in the same cap/floor security master record. Eagle Accounting stores separate long and short positions. Each cap/floor position is a either a long intent or short intent position.

Longs and shorts are not netted into one net position, and:

  • A positive position in a long position quantity signifies a long position.

  • A negative position in a long position signifies a technically short long position (short in a long intent position).

  • A positive position in a short position quantity signifies a short position.

  • A negative position in a short position signifies a technically short position (long in a short intent position).

If you set the entity's Net Cap Floor field to No, the entity election, Tech Short Eligible Indicator field value (tag 57), determines whether the position can go technically short. If you set Tech Short Eligible to Yes, the position can go technically short. Otherwise, if you set this option to No, the position cannot go technically short.

About Netting the Cap/Floor to a Single Position

If you set the entity's Net Cap Floor field to Yes, Eagle Accounting stores one net cap or floor position. An entity can be either net long or net short in the same cap/floor security master record, as illustrated in the following diagram.

Each Cap/Floor position is a net position. Longs and shorts are netted in one position, and:

  • A positive position quantity signifies a net long position.

  • A negative position signifies a net short position. The position is set up in Eagle Accounting as a long position.

If you set the entity's Net Cap Floor field to Yes, a cap/floor position is always allowed to go technically short in the Eagle Accounting long position. Setting the entity's Net Cap/Floor field to Yes overrides the entity's Tech Short Eligible Indicator field setting.

The following figure illustrates transaction processing for a cap/floor net position, where you set the entity's Net Cap Floor field to Yes.

Cap_Floor Net Position where you set the Net Cap Floor field to Yes

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